What Is the Purpose of a Tax ID Number?

Your business is going to need to file income taxes. The Internal Revenue Service uses Tax Identification Numbers to distinguish between individuals, business, and nonprofit organizations, but business tax ID numbers should be distinct from your personal federal tax ID number.

Different Types of Tax ID Numbers

Every American Citizen has a Social Security Number. These are nine-digit codes unique to all individuals. The Social Security Administration issues them at birth or to adults that successfully immigrate. When you file your federal income tax returns, this number distinguishes you from others who might happen to have the same name. States also accept your SSN as a State tax ID number.

A business must also file income taxes, and different business structures may have more than one owner. Businesses also change ownership but remain separate legal entities. The Internal Revenue Service issues Employer Identification Numbers. Like an SSN, and an EIN is a nine-digit code unique to each business.

How Businesses Use Tax ID Numbers

An Employer Identification Number is essential for an LLC or a corporation. You should acquire this number when you first apply for LLC formation. Sole proprietorships may also apply for tax id numbers.

These codes appear on several important financial documents:

  • Income tax filing for business entities
  • Payroll distribution tracking for employees
  • Business credit files and credit applications

It is possible to open more than one credit file by requesting multiple Tax ID numbers. To cut down on abuse, the IRS limits distribution of EINs to one per day for each applicant.

The Importance of an EIN

Like a social security number, it’s important to protect your EIN. Criminals might attempt to make fraudulent credit applications with this code. Failing to file taxes with the correct EIN may result in fines or penalties.

The Purpose of Your EIN

The Employer Identification Number is a business-oriented tax identification number that allows companies with various structures to report their taxes accurately and make payments. Along with that central purpose, it also serves as an identifier to entities you are engaged with. Most of the time, entities that require your EIN do so because there are tax reporting obligations attached to the work you are doing with them. That includes:

Establishing and managing a 401(k) for employees

  • Outsourcing your payroll
  • Applying for a bank account or loan

The Purpose of Your ITIN

If you are not eligible for a Social Security number and you want to be the contact of record for your EIN registration, you will need an ITIN of your own. Its purpose is to allow individuals with tax obligations in the United States to accurately report their income and pay their taxes when they do not qualify for Social Security. That process can take a little time if you need to engage with it, but there are other ways to get a company an ITIN, and there is no rule stating that a company’s owner must be the point of contact for EIN registration.

The Purpose of Social Security Numbers

Social Security numbers came into being in the 1930s with the passage of the Social Security act. Unlike other tax identification numbers, they provide more than just tracking for tax payments and obligations. They also provide long-term tracking of the benefits each citizen is entitled to under the U.S.’s Social Security program. They are also used as tax identifiers for other forms of tax, though, like income taxes. Some individuals with single-member LLCs and Sole Proprietorships file their personal and business taxes together using their Social Security numbers.

Applying for Your EIN

GovDocFiling helps you prepare and track your important documents. Our online EIN application form makes it easy. Submit your request for your business’s unique identifier today.